Ideas of the demise of the spring wheat rally were somewhat premature.
Minneapolis spring wheat futures got off to a screaming
start to Tuesday, soaring 2.9% to $6.18 a bushel for July delivery as of 09:40
UK time (03:40 Chicago time).
Earlier, the contract touched $6.21 ¾ a bushel, the highest
price for a spot lot since January 2015.
The gains followed the release overnight of US Department of
Agriculture ratings which showed the US crop deteriorating far more
significantly than had been thought, trumping by a distance beneficial effects
of rains at the weekend.
'Lowest crop rating
While investors had been expecting a 2-point drop in the US
spring wheat rating, to 53% in terms of the proportion rated "good" or "excellent"
the outcome was far more severe – a 10-point slump to a 45% reading.
That matched the biggest week-on-week decline to a spring
wheat rating in the past 20 years (the other 10-point drop being in July 2006 -
a year when the US spring wheat yield came in at 33.2 bushels per acre, the
lowest but one since the weak 1997 result.)
It was also the lowest reading for any week since July 2006
(a year when the rating ended up at 32%), and the lowest mid-June reading on easily-available
data going back to 1995.
According to Joe Lardy at CHS Hedging, "we are now at the
lowest crop rating since 1992 [presumably for the time of year] when it was 43%".
Of less surprise was where the readings were notably weak in
the Dakotas, where drought has been spreading fast.
The proportion of spring wheat in North Dakota, the top growing
state, rated as in good or excellent condition dropped by 9 points to 43%, and
in South Dakota by 12 points to 13%.
(That compares with 57% in poor or very poor condition in South
However, in Montana, the rating dropped particularly steeply,
by 25 points to 23%.
That said, the northern Plains received rains on Monday, and
more are expected this week, although how much is course a matter of
The GFS model shows "that over the western Corn Belt as well
as the central and upper Plains, the rainfall over next seven days is not that
impressive," said Dave Tolleris at WxRisk.com, although South Dakota is seen
getting some precipitation.
(The eastern Corn Belt, by contrast, is shown with rains
0.5-1.5 inches above normal levels.)
Not that weather models are moving in lockstep.
That said, looking further ahead, into the middle of next
week, the GFS modest drives a cold and wet front "deeper into the Deep south
and the East Coast, which means less rain for the Midwest and upper Plains".
The European model "stalls the front apparently over the
Midwest which provides for more rain in the week two to forecast for all of the
Midwest - but not the Upper Plains".
The strength from spring wheat – which was also fuelled by a
rally in the Canadian dollar, making Canada's spring wheat exports more
expensive - spilled over into other grain markets, including Chicago soft red winter wheat, which added 0.8% to $4.37
¼ a bushel for July.
Kansas City hard red winter wheat (higher protein than soft
red, but not as high as Minneapolis spring) rose by 1.2% to $4.47 ¾ a bushel for
July, reopening a bit its protein premium.
Not, it has to be said, that the hard red winter wheat crop
is expected to be a high quality one.
Hard red winter wheat harvest reports say that "the protein
content tends to be below average, which is in line with expectations," said
Benson Quinn Commodities, if adding that "some protein reports are coming in especially
The broker added that it had "not seen much from the soft
red winter wheat harvest", a factor which "tends to mean yields are near
expectations and there may not be systematic quality issues".
An extra support to prices came from a further tender
announcement by Egypt's Gasc authority – its second in four days.
"Results will be released this afternoon and it is likely to
see Saturday's sellers, Russia and Romania, well placed to win the tender," Agritel
"Egypt secured 3.4m tonnes of local wheat from producers
this season, short of the 3.5m-4.0m tonne target," noted Terry Reilly at
Corn futures for
July, meanwhile, were dragged 0.7% higher to $3.79 ¾ a bushel.
The USDA data overnight were pretty neutral for the grain,
in showing the US crop rating down 1 point at 67% rated good or excellent, a
drop reflecting a 17-point tumble to 45% in the South Dakota reading.
Still, the weather forecasts – for what they are worth - are
not ideal for many Corn Belt areas.
"With little agreement from in weather models, I think the
crop ratings offer support for 'turn-around Tuesday' trade," Benson Quinn Commodities
for July added a more modest 0.2% to $9.33 ¼ a bushel, despite the first
condition reading for the US crop coming in, at 66%, below market forecasts.
"USDA reported initial soybean crop ratings at 66 percent
for the combined good and excellent categories, 3 points below expectations,"
Futures international's Terry Reilly noted.
futures were up only 0.01 cents a t 31.95 cents a pound despite data on rival palm oil showing Malaysian stocks of
1.56m tonnes, some 20,000 tonnes below expectations.
Palm oil futures themselves stood 0.2% lower at 2,452
ringgit a tonne in Kuala Lumpur.
Prices of vegetable oils (the raw material for biodiesel)
are also moving on talk that a US announcement on details for the 2018
renewable fuels mandate will be made soon.
'A lot more to sell'
Cotton bucked the
upward trend, falling 0.4% to 72.17 cents a pound in New York for December
delivery, 0.02 cents from matching a four-month low for the contract.
Besides the somewhat bearish data released by the USDA on
cotton on Friday, cutting the forecast for US exports in 2017-18, the crop
progress report overnight showed a sharp improvement in the condition of the US
crop last week, by 5 points to 66% rated good or excellent.
The rating for Texas, the top growing state, soared 9 points
to 62% good or excellent.
"The report suggests US cotton crops are both on schedule
and in good condition," said Tobin Gorey at Commonwealth Bank of Australia,
saying the data "might prompt an immediate test of [price] lows".
He also noted that, for cotton growers, "the weather is
largely benign to good across the US and elsewhere", and that speculators
retain a large net long position in New York cotton futures and options.
"We think the chances are they still have a lot more to sell."